The Nigeria-focussed oil and gas investor last week released first half results that illustrate a company with a strong financial position and outlook.
It revealed that in 2020 to date, the company with investments in Nigerian oil assets received US$41.5mln from operators, via loan note repayments. Some US$88.7mln of future loan note payments remain under its loan arrangements.
San Leon ended the half with US$35.6mln in cash and had US$22.6mln by mid-September following new investments.
The loan notes were the basis of San Leon’s investment in OML 18 (an operation bought out from Shell in 2015), with the operator paying a material coupon and providing the company with a 10.58% indirect interest in the underlying oil fields.
Allenby, in a new note, described San Leon’s strategic move into Nigeria as “a great success story”, whilst noting that the more recent investments similarly focus on the acquisition of cash-flow.
“The OML 18 move has been followed by two recent investments which again focus on near-term cash flow,” Allenby analyst Peter Dupont said.
“These are the interests taken in the new ACOES export pipeline linking the core of the OML 18 operations with an offshore FSO and in the Oza field development project in the northern Niger Delta. High yield debt is a feature of both investments.”
Dupont highlighted that currently San Leon shares are pricing an enterprise value of just £29mln, substantially less than the £371mln value estimated by Allenby.
“We have adopted a hybrid sum-of-the parts approach to valuation,” Dupont said. “In the case of the current cash balance and the financial receivables relating to OML 18 and the ACOES pipeline, we have valued these items dollar for dollar.
“Regarding the equity interests in OML 18 and Decklar, our valuation basis is price/boe multiplied by net reserves. We have used $3/boe and $1.5/boe for 2P reserves and 2C resources respectively. Our valuation overall is $482m or £371m, equivalent to 82p/share.”
San Leon paid out US$35.3mln to shareholders in the first half of 2020 and in May it announced that a US$33.3mln special dividend would be paid - representing a dividend yield of about 30% at that time - and a US$2mln share repurchase programme was completed early in the reporting period.